What will your life look like once you retire? Do you plan to travel? Visit grandchildren more often? Maybe retirement is something you do more on paper because you still plan to work. Whatever your particular retirement looks like, you have to think about your home. Some people elect to downsize from a house that was once full of kids. Others would stay forever, if possible. Here’s a look at which option might be right for you.
There are plenty of reasons to put your house up for sale. If you own your home outright or have a lot of equity, selling could be the boost your retirement accounts need. “If you’ve lived in your home for the last two out of five years from the date of sale, you can exclude up to $250,000 of the capital gain from the sale of the house if you’re single. If you’re married, you can exclude up to $500,000,” says Carlos Dias Jr., wealth manager at Excel Tax & Wealth Group in Lake Mary, Fla.
Many people today are going into retirement without enough money saved. To avoid being caught in a future housing crisis, selling while the market is healthy might be wise. See also Avoid the Downsides of Downsizing in Retirement and Retirement Living: Renting vs. Home Ownership.
Homes, of course, come with maintenance. The older your home, the more maintenance it’s likely to require. And the larger it is, the more time and money you’ll have to sink into taking care of it.
What about utilities? Did you purchase your home to meet the needs of a larger family? Are all of those extra rooms now only used when grown children or grandchildren come to visit? You’re still paying to heat and cool them. Plus, the larger your house, the more property taxes you’re paying on it. Are you wasting crucial retirement funds on a large house when you’re really only using a few of the rooms?
As you age, your home might have a feature that could become a real problem: stairs. Stairs can create mobility challenges for seniors later in life. You may be forced to remodel your home if you choose to stay in it through retirement.
Think back on when you were looking for the perfect home. You might have looked for one in the best school district, near the office or in a more affluent neighborhood. As a retiree, some of what you were looking for then may not apply now. Moving even a small distance could dramatically lower your property taxes or put you closer to things (or people) that are important to you now – like your children and grandchildren.
Alternatively, you could be looking to move to an entirely different state or country. You could plan to sell your home and rent for a year to see if you really enjoy living in that new area. Sometimes what you thought would be the perfect place to retire to ends up not being the fit you thought it would be. For more, see Retirement: U.S. vs. Abroad.
When you sell your home, the most likely outcomes are renting or buying a downsized home. In the case of buying you could pay in cash, but if you’re renting, you’re paying with money you’ll never get back. Staying in your home, even with all the expenses, may be cheaper than renting, where you’re again stuck with paying a monthly fee for housing.
All this depends on the equity you have in your home. If you didn’t or no longer have a mortgage – or you’re close to paying it off – carefully weigh the financial implications of both decisions. If your equity is low or you’re nowhere near owning the home outright, you may lower your payment by selling and then renting. Don’t forget that renting often means that all the maintenance and possibly some of the utilities are included in your rent.
If your home is appreciating in value, it might be worth holding it a little longer. Check with a realtor and get an opinion on the local housing market.
There may not be as many financial reasons to stay, but the non-financial reasons may be strong. If you’ve lived in your home most of your life, you might have raised children there. The memories attached to that house are powerful and leaving those behind could be tough. You might decide that the sense of family you feel when you’re in your home is how you want to live in retirement. There’s nothing wrong with that, providing you and your spouse have the financial resources to support yourselves there.
“In many cases, it makes financial sense for retirees to downsize as it eliminates maintenance costs and higher rent or mortgage payments,” says Matt Cosgriff, a certified financial planner and retirement consultant at BerganKDV. “That’s a big plus for retirees who are now relying on their retirement assets to support their spending. The decision, however, is not always an easy one due to the fact that many retirees have years, if not decades, of memories tied up in their home. To help overcome this hurdle it is important for retirees to focus on the positives of downsizing, which include more time to be able to spend with loved ones and a lower monthly mortgage or rent payment.”
In retirement planning, there is no one answer. It all depends on you and your financial picture. That’s why it’s so important to find a financial advisor/planner whom you trust to help walk you through decisions like this. He or she will know the questions to ask and can show you how each decision looks on paper. After that, it’s ultimately up to you.